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Friday, 30 March 2012

Chinese company world's largest oil producer

Everybody likes to compare themselves to the biggest and the best. For years, Exxon Mobil was the largest publicly traded company in the US and the biggest producer of oil and natural gas. Many have challenged its dominance, and on Thursday a new contender emerged. The challenger is PetroChina, a state-controlled giant that just announced its oil production has topped Exxon’s.

PetroChina can now say it produces more daily barrels of oil than Exxon Mobil. The Chinese company produced 2.43 million barrels of oil per day in 2011, climbing above Exxon’s 2.3 million barrels. Chevron, for example, saw production slide to 1.8 million barrels last year.

Even though those figures appear troubling for Exxon’s shareholders, they don’t tell the full story, as the American company’s massive natural gas numbers take its consolidated oil-equivalent production well above all of its competitors. Its profits are up there too, even as it loses the top spot as the world’s largest private oil producer.

Exxon’s combined oil and gas production, captured by what is known as oil-equivalent production in the industry, was 4.5 million barrels per day in 2011, up 1.3% over 2010. While that’s well above PetroChina’s 3.5 million daily barrels, the Chinese company grew its total production 4.7%, which is more than 3 times as fast as the American company.

The companies, though, are inherently different. PetroChina’s largest shareholder, with an 86% stake in the company, is the Chinese government. Thus, the company faces a double-edged sword: on the one hand, it can pursue less profitable but still productive enterprises that increase its production, on the other, regulated sales prices limit top-line growth.

Comparing PetroChina to Exxon Mobil makes sense in the context of publicly-traded companies. If we grouped it with national energy producers. When put on the same plane as Saudi Arabia’s Aramco, the largest oil company in the world, PetroChina can’t even compete: Saudi Aramco produces about 7.9 million daily barrels of oil, more than tripling the Chinese company’s production (and essentially doubling Exxon’s).

Comparisons are always difficult. But some numbers are beyond debate. PetroChina’s 2011 profits slid 5% to $21 billion as the company grew its productive capacity. Exxon Mobil saw profits surge 35% to $41.1 billion on falling production. Clearly, Exxon and PetroChina diverge when it comes to their business model.

Among Exxon’s strengths is its prowess in natural gas. The largest US oil company produced 13.2 billion cubic feet of natural gas, and has proved reserves for another 76.2 trillion cubic feet, making it the US’ largest producer of natural gas. PetroChina’s production jumped 7.9% in 2011 but was still 2.4 billion cubic feet, well below Exxon’s. But, with proven reserves of 66.7 trillion, PetroChina can begin to tap unconventional production methods such as fracking to dramatically increase its production and play catch-up.

Exxon has been among the elite of global companies for quite some time. Recently, Apple surpassed it in terms of market cap in the US, taking the top spot as the largest publicly traded company. Being the biggest and the best means everyone’s out for your lunch, and from all angles. Beyond PetroChina, others like Brazil’s Petrobras are trying to take a stab at Exxon.

CFO Almir Barbassa has told Forbes on several occasions that their goal is to become the world’s largest publicly traded oil company. Petrobras is in the middle of a massive-$225 billion investment plan that should take oil-equivalent production from about 2.8 million barrels today to about 4 million in 2015 (around Exxon’s current production) and hopefully 6.4 by 2020.

PetroChina’s rise, along with Petrobras’ aspiration, proves the world is an increasingly globalized place where competition is no longer a privilege of the so-called advanced economies. While Exxon Mobil remains the biggest dog in the block, the puppies are growing up.